Dogs of the Dow is an investing strategy that buys and holds equal dollar amounts of the 10 best-yielding dividend stocks of the Dow Jones Industrial Average (INDEX: ^DJI ) . The strategy banks on the idea that blue-chip stocks with high yields are near the bottom of their business cycle and should do much better going forward. Investors in the strategy then would not only get large dividends but also gains in the stocks underlying those dividends.
Evidence compiled by Tweedy Browne refutes these falsehoods. Research shows that portfolios of high-yield dividend stocks outperform lower-yielding portfolios and the market in general. In fact, a study by noted finance professor Jeremy Siegel found that over 45 years, the highest-yielding 20% of S&P 500 stocks outperformed the S&P 500 by three times! The highest-yielding stocks turned a $1,000 investment in 1957 into $462,750 by 2002, compared with $130,768 if the same money was invested in the index.